One of Marin’s largest outpatient surgery centers is growing as it competes with MarinHealth for patients.

The Marin Specialty Surgery Center, which has been operating out of a 5,000-square-foot space at 505 Sir Francis Drake Blvd. in Greenbrae for about 15 years, is relocating to 1 Thorndale Drive in Terra Linda. Its new space will be 14,400 square feet.

MSSC is partially owned by 16 local physicians. Ten of them are members of the same practice, California Orthopedics and Spine in Larkspur.

Critics of such surgery centers say they undermine the financial viability of hospitals by siphoning off their most lucrative customers: privately-insured patients. Advocates argue such centers save patients money by operating more efficiently.

“It’s a challenge for hospitals when you have physicians competing with them,” said Marin Healthcare District board member Jennifer Rienks. “At the end of the day, we need to preserve the hospital financially because the hospital is our safety-net provider.”

The board oversees MarinHealth Medical Center, formerly known as Marin General Hospital. Another board member is Dr. Brian Su, medical director of spine surgery at MarinHealth Medical Center and chief development and strategy officer of California Orthopedics.

“With a lot of people having high-deductible insurance contracts, many patients are looking for the same quality of care done at a much lower cost,” Su said. “The residents of Marin need to be able to have access to what is quickly becoming the standard of care, which is outpatient orthopedic and spine surgery.”

MSSC expects to open its new office in April. It will expand from two to three operating rooms and the rooms will be larger.

“We are also expanding service lines to include some outpatient spine and total joint replacement surgery,” Su said.

Oren Shill, vice president of operations at Surgical Care Affiliates, which shares ownership of MSSC with the doctors, confirmed the surgery center performed 3,375 procedures in 2018 and was doing about 330 a month as of May. Surgical Care Affiliates is an Illinois-based company that operates more than 210 ambulatory surgery centers and surgical hospitals nationwide.

By comparison, MarinHealth Medical Center reported to the state that it performed 4,065 outpatient surgeries during the first six months of 2019.

MSSC has not reported financial data to the state since 2011. According to the California Health Care Foundation, a 2007 legal decision removed any requirement for physician-owned ambulatory surgery centers (ASCs) in California to report information to the state, which has resulted in a rapid drop in the number of licensed ASCs reporting.

MarinHealth Medical Center CEO Lee Domanico said the hospital is competing with MSSC and, to a lesser degree, three other outpatient surgery centers in Marin for revenue critical to the hospital’s operation.

“We’re the safety net hospital,” Domanico said. “We take care of 80% of the Medi-Cal population in Marin, whereas we take care of about 45 percent of the commercially insured population.”

The problem, Domanico says, is the amount of money the government gives the hospital to provide care for Medi-Cal and Medicare patients fails to cover the full cost of the care.

“In 2018, we had $82 million in unpaid costs to serve Medicare patients. That is unpaid costs not unpaid charges,” Domanico said. “And we had $29 million of unpaid costs for treating Medi-Cal patients.”

During the first six months of this year, about 43 percent of MarinHealth’s outpatient surgeries were for Medicare patients and 16 percent were for Medi-Cal patients. Shill said about half of MSSC’s surgeries in 2018 were paid for by the government. Su said because of its efficiencies, MSSC is able to make a small profit operating on Medicare patients.

Domanico said most of the hospital’s profit comes from commercially insured outpatient services, such as imaging, lab work and surgeries.

Su said, “I think the first question then is, why did the hospital sell its equity stake in the surgery center?”

Up until the end of 2018, MarinHealth owned a piece of the Marin Specialty Surgery Center along with 20 doctors and surgical care affiliates.

“We sold our interest because that is what the physician-owners preferred. As a hospital, we try our best to maintain good rapport and relationships with our physicians,” Domanico said. “We prefer not to do things that physicians are opposed to.”

At the same time, 12 of the 20 doctors with equity interests in the Marin Specialty Surgery Center sold their shares to seven other doctors. Six of the doctors who bought in, including Su, are members of California Orthopedics and Spine.

“Most of us had to do it against our will,” said Dr. Mark Bazalgette, a colon and rectal surgeon in Novato, who sold his interest in the MSSC.

“Basically, there was a group of doctors who decided they wanted to take the MSSC to a new level and make it into an overnight stay type of clinic,” Bazalgette said. “This new entity did not want to have doctors in it that it thought were not contributing to the profit line. They basically went through the books and saw which doctors were taking in the least money.”

Domanico said MarinHealth has plans to open its own outpatient surgery center in the next few years, in a new building that will be constructed adjacent to the new 260,000-square-foot hospital scheduled to open next summer.

Marin Healthcare District board member Larry Bedard said ideally the doctors underwriting the new Marin Specialty Surgical Center office would have collaborated with MarinHealth on that project.

“Now to compete with its own medical staff,” Bedard said, “(MarinHealth) is going to build and staff its own surgery center.”

Bedard said Su must often recuse himself from participating in healthcare district board discussions due to a conflict of interest associated with his partial ownership of the Marin Specialty Surgery Center.

Su said he decided to invest in the surgery center this year because “a big portion of the future of spine surgery is outpatient spine surgery.” Su said because of their quick turnaround time between operations, surgery centers allow doctors to do the kind of volume they need to do to have a successful practice these days.

“To be able to sustain a practice anywhere in the country you have to be able to do lots of surgeries,” Su said. “Most total joint surgeons now are doing six to eight total joint replacements in a day. Back in the day 20 years ago, you could get away with two.”

Su said he isn’t sure why the turnaround time at surgery centers is faster than at hospitals. Domanico said the answer is obvious.

“Surgery centers tend to do easier cases,” Domanico said. “Hospitals do higher acuity, higher risk surgeries, which means more equipment and more instruments.”

In fact, Medicare requires surgery centers to have a plan in place to transfer their patients to a local hospital if an emergency arises.

Elizabeth Munnich, an assistant professor of economics at the University of Louisville, said, “Any surgery center administrator will openly say that one of the most important things they can do is triage the healthier patients to be treated in the surgery center; they’re not going to take anybody they’re concerned might need additional care that can only be provided in a larger acute care hospital.”

Munnich, who has done academic research on surgery centers, said she has found that they provide superior results at lower costs but she said those advantages must be balanced with the need to subsidize hospitals.

Su said, “Because of certain efficiencies the cost of care to the patients is almost always much less when surgery is done in a surgery center.”

Medicare is an “unsustainable model” and desperately needs the savings that surgery centers can provide, he said. According to 2018 analysis by Brent Fulton and Sue Kim, members of the University of California at Berkeley’s School of Public Health, ASCs could save Medicare as much as $57.6 billion over the next 10 years.

Despite Munnich’s findings that ASCs provide high quality care, some have raised questions regarding their safety. A 2018 investigation by Kaiser Health News and the USA Today Network found that more than 260 patients had died since 2013 after in-and-out procedures at surgery centers across the country. Fourteen of those died after complex spinal surgeries.

The investigation also found that some surgery centers were risking the lives of their patients by skimping on training or lifesaving equipment.

Elizabeth LaBouyer, executive director of the California Ambulatory Surgery Association, said, “Human health can be unpredictable and tragedies can occur in any health care setting – this does not mean that hospitals in general are safer or ASCs in general are unsafe.”

The Marin Specialty Surgery Center participates in a pay-for-reporting, quality data program operated by the Centers for Medicare and Medicaid Services. The results are posted online but are not posted in a format that the average person could understand.

Su said another reason Marin needs a surgery center is that it is impossible to recruit doctors to the area without one.

“Almost all orthopedic and spine surgeons have equity ownership in a surgery center,” Su said. “That is a baseline expectation across the country.”

Rienks, however, said when surgeons own a surgery center they have an increased financial incentive to operate.

“Sometimes things are being done to patients that they don’t need to have done,” Rienks said, “and that is part of what drives up health care costs.”

Doctors who own surgery centers not only get paid a fee for performing surgeries but they also share in the facility’s profit and appreciation in the value of the center.

A 2010 study by the University of Michigan health system found that when doctors invested in an outpatient surgery center they performed on average twice as many surgeries as doctors with no such financial stake.

LaBouyer said, “The doctors who own or perform procedures in surgery centers work in partnership with the local hospital system and place great emphasis on identifying the appropriate site of care for a patient based on their unique needs and medical history – these decisions are based entirely on what is the best option for the patient.”